How Social Security can help you catch up on retirement savings

I was chatting with my dad on Father’s Day (he prefers phone calls to Father’s Day gifts), and everything seemed ordinary at first. He asked how Jake and I were enjoying our house and whether I still liked my new job. However, I was in for a surprise. When I asked him how his work was going, he said, “Oh, I retired a couple of weeks ago.”

!!!

After I stopped sputtering, I learned a couple of things:

First, his coworkers got about as much notice as I did. Apparently, during a weekly goal-setting meeting, they were going around the room and when they got to him, he said, “Today’s my last day.”

Second, I learned my dad actually started taking Social Security five years ago, when he turned 65.

Americans aren’t saving for retirement

It seems like every day a new survey is released that concludes Americans aren’t saving nearly enough for retirement. Google “percentage of Americans who haven’t saved for retirement” if you want to engage in some schadenfreude. My search suggested that fully a third of folks have saved a big, fat nothing! Scary.

There are many reasons for this. In my dad’s case, he never had a job that even provided retirement programs he could contribute to until he was in his 50s (let alone a job that offered a match from his employer). In fact, if I recall correctly, he never even had a job that offered health insurance until late in his career.

Since he was raising two children and caring for a disabled wife during many of his working years, retirement was always one of those things he thought he’d have to deal with later.

Many people can’t retire as a result of a variety of factors. So my dad certainly wasn’t alone in the lack-of-preparedness department. And while he did start contributing to retirement accounts as soon as he worked for an employer that offered them, he knew he was way behind. Fortunately, he lived simply and had no debt. Unfortunately, he quickly realized that catch-up contributions weren’t going to be enough.

Working while taking Social Security

“You can get Social Security retirement benefits and work at the same time. However, if you are younger than full retirement age and make more than the yearly earnings limit, we will reduce your benefit. Starting with the month you reach full retirement age, we will not reduce your benefits no matter how much you earn.”

I knew that if you were under full retirement age and took benefits, they would be less than the full amount, and Get Rich Slowly, and other personal finance websites, talk about working part time in retirement. However, I have never seen a discussion of working full time in retirement while taking Social Security as a catch-up strategy for retirement savings. Additionally …

“As long as you continue to work, even if you are receiving benefits, you will continue to pay Social Security taxes on your earnings. However, we will check your record every year to see whether the additional earnings you had will increase your monthly benefit. If there is an increase, we will send you a letter telling you of your new benefit amount.”

So the fact that (like many Americans) the last years of my dad’s career were also his highest-earning years means that it is likely his benefits increased, since he kept working. Amazing!

What my dad did with the money

Also news to no one: Social Security’s full retirement age is slowly being raised, and the benefits slowly decreased, to deal with long-term solvency issues the program has. What you will get from Social Security depends on how old you are now.

Especially if you are on the younger side, it may be that Social Security payouts won’t be nearly enough to live off of during your golden years. However, my dad was able to start claiming the full benefit amount at 65 and, in his case, Social Security alone is enough for him to live off of as long as there isn’t some sort of financial emergency.

For the last five years, then, he’s been living off of Social Security and banking his entire income from his day job in a savings account. As a result, he’s built up a nice little nest egg to tide him over in case of emergencies. And for at least another five to 10 years before that, he was contributing to a retirement account that he is now able to access.

My dad’s plans for retirement

At this point, while he doesn’t have enough to live extravagantly, he has more than enough to pay for his two-bedroom condo and upkeep on his car. He told me his initial plans mainly revolved around a major purge of his belongings. While he has never had a tendency toward acquisitiveness, living in the same place for almost two decades means things have been creeping in — and not creeping back out again — for a long time. So, much like J.D., my dad is declaring a war on stuff. I know I stored some things at his house before I moved across the country over a decade ago that I haven’t been back for, so I told him to send that my way.

Despite having retired from a job selling RVs, however, he is not interested in RV retirement. (I think it reminds him too much of work!) Instead, he’s also going to finally take some time to visit his daughters since we both live in other states. And my sister and I both have enough space to put him up for however long he wants to stay, though in my case I suggested he wait until the high temperatures start to dip below 110!

He also said that the whole not-working thing may just be temporary. RV sales plummet in the summer, and the main reason behind the timing of his retirement was not wanting to spend the hottest months of the year pacing the sales lot with so little a chance of it paying off. He says once things cool off and the snowbirds flock back to Florida, he’ll probably work again, at least part time. He can probably make enough during the busy season to add even more to his retirement stockpile.

Do you or someone you know take Social Security benefits while continuing to work full time? Has this method increased your monthly benefit? What made that the right choice, or was it a decision dictated by circumstances? Share your thoughts in the comments below!

Interesting strategy! I’m not sure it works the same way where I live – and I hope I don’t have to find out…

I worry that this could backfire for couples though. If you’re used to living on both of your retirement benefits and one spouse dies, the other’s lifestyle has to change because survivor benefits are less.

He probably would have been better off not claiming until his 70th birthday when his benefit would be 32% higher not counting additional COLA’s. Unless his health is in question or he needed the extra money to live on the wait until 70 strategy usually trumps taking it earlier and makes more sense financially.

Actually it doesn’t make much of a difference, and you have just as much of a chance losing money (by dying) because you get a 5 year headstart on benefits. The most he could possibly earn, is 36% more. You’d have to live long enough past 70 for the 36% more to exceed 100% x 5 years. By that age most people are counting time more than they’re counting pennies. That’s why people who can wait it out to 65 are more than happy to get an immediate boost to their income at a relatively younger age (relative to my 105 yr old great uncle who’s still kickin’), or enough income that they can retire outright. Either way you get benefits until you die, so why give away 5 years of money you will never get back, just for a bit of extra change per month?

Waiting is in essence longevity insurance. It is designed to be actuarilly neutral. If one lives past the break even point(82), one makes out better. If one dies before the breakeven point one has left money on the table by deferring. The piece of mind of having more income if one lives past 82 is worth a certain amount of piece of mind vs the bird in the hand of taking the money sooner. In this case the Dad did not need the money, so it would have made more sense financially for him to defer until 70, absent health issues that suggested early death. One will only know in hindsight which was the better decision. I would opt for the longevity decision for the added piece of mind.

In reply to “I would opt for the longevity decision for the added piece of mind” got me thinking that perhaps he wanted to leave his children something. The only way to do that is to collect it early and save it. Similar to pension distributions, the difference between the lump sum payment (it’s yours on day one) vs the annuity (you get it in pieces until you die). With the annuity payments you may not get all of it and you can’t pass the balance down.

Actually, this has been part of my retirement plan. My retirement age is 66, and at that time I can receive the benefit I’m eligible for as a divorced spouse. ( I don’t expect to remarry) I will use that amount to pay off any residual debt, and bolster my retirement savings. Then at age 70, the age I plan on retiring, I can receive the SS benefit that is based on my earnings, which by that time will be much more than the spousal benefit.

In the meantime, I have been contributing to a 401K thru work and making sure I contribute at least as much as the match, if there is one that year. Individuals in my profession often work until 70 (mental health professional) and I might even work part time after age 70, depending upon health and opportunities.

I have known for some time that full retirement is probably not right for me, simply because I need a purpose in my life and I get that thru my work. I will also enjoy the extra income in order to travel and generally live a bit easier than I can now.

I did not plan on being a divorced female who had been primarily a stay at home mom for most of the 30 years I was married. Things happen that we just can’t foresee. Because of all the years I didn’t work, my SS benefit would have been much lower–in that I am playing catch-up.

Divorce devastates a couple’s financial situation, and mine in particular, as my income as a mental health professional is approximately 1/2 of what my spouse earned. And I received spousal support for only a few years.

I have found the information from this website very helpful (for the most part) in learning how to budget and reduce debt. Both were life skills that were entirely new to me. Very humbling at my age but better late than never.

You probably already know this, but just in case you (and others) don’t, (I’m 995 certain) you can receive Social Security benefits on your ex-husband’s “account” because you were married for 10 years or more. I don’t know if that’s in addition to your own benefits or as a replacement.

My parents were divorced, but I know Mom is planning on getting spousal benefits based on Dad’s Social Security as they were married for at least 10 years.

My MIL got a notice that she could collect half her ex-husband’s SS when she hit retirement age (which is more than she’d get on her own even if she worked to age 70). She started collecting at 65 and is still working into her 70’s and has been banking it for a future nest egg (though I strongly suspect she wants it to be an inheritance for her kids and grandkids). But yeah, it’s a plan and one more thing to consider. Truly, you have to run a number of scenarios because what you think is in your best interest in the long run may not be.

I think that Social Security will still be around in some form when my wife and I retire. But with that said, we have no idea if the benefits will be higher or lower or if the rules will change so that people with certain levels of savings don’t get benefits. Because of this, we are saving all that we can for retirement and any Social Security that we do get will be treated like a bonus.

Ditto. I’m hoping that by the time I retire enough Millenials will be working and paying into the system that the much smaller Xer generation (mine) will be ok with Social Security. But I’m not betting on it.

It’s wild, though, how much of a difference there is in the monthly savings amount from the retirement calculator when I plug in the Social Security benefit vs. leaving it blank.

“In my dadâ€™s case, he never had a job that even provided retirement programs he could contribute to until he was in his 50s (let alone a job that offered a match from his employer). In fact, if I recall correctly, he never even had a job that offered health insurance until late in his career.”

I wonder how many Americans are in a similar boat. Working in corporate America it’s easy to lose touch with the reality that many have jobs that don’t provide health and retirement benefits. I’ve come across some people who are completely unmindful about this and blame those for not saving for retirement (or taking food stamps, etc.). They don’t understand that when you have to put all your resources towards meeting your current needs it’s hard if not impossible to save towards your future needs.

Kudos to you dad for coming up with a creative solution, though! I knew one could work while taking Social Security benefits, but I never thought about this approach. I’m glad both for him and for you and your sister that he’s able to take care of himself in retirement despite all the obstacles he had to saving.

I have a friend who will be eligible to start collecting social security at the end of the year. She plans to file for her benefits and continue to work full time as her salray will be under the cap where they start deducting from your SS paycheck. She’s been divorced for 35 years (never remarried) but wasn’t married long enough to collect from her former spouse. She’s never saved for retirement, and when her mother passed away she used the inheritance she received to do updates on her house. She mentioned something about her SS benefits would make a car payment for her so I don’t think there’s any plan to sock money away. She’s worked in the healthcare field (dr office admin) so never had any type of retirement fund to pay into. I feel sad for her but she’s chosen to spend her money and enjoy life now rather than plan for her retirement.

Your dad probably would have been better off doing the opposite–delaying social security to age 70 (when he retired from work) and living off of his wages until then. This is because his full retirement age SS benefit grows at ~8% per year (adjusted for inflation) for every year that he defers claiming it (up to age 70). You can’t beat an 8% risk-free, inflation-adjusted return these days (I’m sure his savings account yields less than that).

Also, a higher proportion of his SS benefit is taxed if he has other earned income which pushes his AGI above a certain breakpoint.

He could have done that, yet consider he was able to live comfortably on what the Social Security provided for five years. So now, at retirement, there is no impact to his standard of living and his nest egg can continue to grow and be used occasionally for optional items. For all we know, his standard of living is such that he will almost never have to touch his nest egg, which would be ideal.

I am a gen X as well and am not counting on Social Security. However, if it is still there that will be a bonus. If it is I will probably also work and collect. My retirement plan calls for me reducing my hours dramatically but not quitting all together for as long as I am able and as long as I still love what I do. The last child just moved out so we plan on living on one paycheck and saving the other for retirement. My husband can also start collecting a pension (one of the last in the country?) at 55 from his previous job and we plan on investing that for retirement. While the pension has reduced benefits starting at 55, as long as he lives longer than 70 then he is even (family history indicates he will most likely live until 90+). That is currently the plan but best laid plans….

Tell me what’s wrong with my logic. There must be something because I never see this discussed anywhere, and I’m no math genius. By starting his SS starting at age 65, Honey’s father has collected five years’ worth of payments. So supposing he gets $10,000 a year, that’s $50,000. To determine where he is financially, you have to factor in having that extra amount against the extra monthly payment he would have had by waiting till age 70 to start collecting At, say, $200 additional/month, it would take 250 months, or 20 years, to break even. And having this money has enabled him to invest the money he made by continuing to work. Of course I’m working with hypothetical numbers, so maybe that’s the problem.

You’re correct Bonnie. When you break it down it really isn’t a deal. Besides, who wants to be chasing down dollars in their 70’s! Time is not on your side at that age. If you really want to maximize then technically you don’t have to stop working until you keel over. You’ll die with xx% more money. Won’t that be great! lol

Nope, in my 30’s I already know I will be taking that cash at 66 with no hesitation. I doubt I’d do it earlier because I have a feeling that 62 is still young enough to me that I’d feel pain at the idea of losing money. Plus I actually do want to be one of those who works till they keel because I actually love my job.

About chasing money in one’s 70s…I’m not exactly sure what that refers to, but I know many 70+ individuals who are living very active, productive lives. 2 that come to mind immediately are still working part time, travel when they want, and are mentally fit and satisfied.

It’s not that I think we always need to be productive, but it often gives a sense of purpose. It’s a very individual thing. But a few articles ago we were discussing balance. I know that is what I’m hoping for, and what I hope achieve.

See I don’t equate productivity with earning money. In fact I hope not to be working for the sake of earning money when I’m 70. Preferably I’ll be volunteering, or working for the fun of it.

If you don’t need the money at 65, why not take the contribution and donate it to charity, or do good with it, or gift it to grandkids, etc. 82 is really pushing it if your goal is to get bang for your buck. SS is not savings. If the rationale is that you might need it later in life for medical issues, an apportioned amount each month isn’t going to cut it. I’d much prefer to have a big chunk of savings that I can throw down all at once if need be. Something my family can inherit.

We plan on delaying our SS for as long a we can to get the built in 8% COL increase each year. That is difficult to match this nearly risk free investment with that kind of return. Also, I believe research shows that the older you get that most of your expenses tend to go down (other than health expense).

It is a tough decision to decide when to take SS. I think there are 80 different options you can choice, so your individual situation will probably be the driving reason behind your choice.

Article stated “For the last five years, then, heâ€™s been living off of Social Security and banking his entire income from his day job…”

So he wasn’t living off salary, he was living off the SS, and banking his salary, which may have been significantly higher. Hence he could have banked into six figures if his salary was $35 to 40K a year (e.g. saving $25K a year post taxes) while living off of $10-12K a year. This makes it even more likely that the nest egg saved was significant. As I mentioned earlier, by living off SS and not impacting his lifestyle, all his savings are extra, and what they earn annually, is bonus.

The decision to postpone benefits does implicitly assume a minimum “breakeven age” (generally around 82 if I remember correctly). If one has good reason to believe they will die younger than this, it may make sense to claim benefits earlier. However, another important consideration is that by postponing to age 70, you create a higher benefit threshold for your surviving spouse (who may significantly outlive you, especially if they are younger). Some people may rationally choose to forgo a portion of their current benefit in order to either 1) purchase longevity insurance (should they live longer than expected) or 2) ensure that their surviving spouse is not consigned to aged poverty.

This is something to consider. Everyone in my family tends to die on the younger side (I don’t even remember either of my grandmothers, my grandfathers died before I was 20, and my mom died when she was 46). My dad’s a windower so there’s no surviving spouse who needs to be accounted for.

third of Americans HAVE NOT saved any money for retirement. Think about that, look at how this country is changing. This is what I see in America’s future. Taxpayers and folks who did it right will be forking over more of their money, even out of their retirement plans(yes) to pay the way for the people who did NOTHING. Mark my words, in 30 years this will be an agenda by the left to take from the do-ers to pay for the did NOTHING, and it will be the do-ers fault and obligation to do this.

Some will say I’m crazy and mean. Sorry, I did not do my part, work for 45 years and save, to pay for others.

We are becoming socialist. In 30 years we will be socialist b/c American’s are too blind to see when they are being played.

When a portion of your retirement accounts are taken, be it your Social Security, 401k, IRA, etc. under whatever fancy worded legislation delivered by a lying politician you can remember this comment. It’s coming. Be prepared and don’t let them lead you blind like they have been for the last twenty years. Remember, the folks that will put this plan in place will not be affected by this policy, just like they don’t have the same healthcare as the rest of us. They won’t lose a dime.

look it is all ready happening.I pay into Medicare and now I am required to pay for healthcare again.Liberal policies my sound good but they end up bad.Look at Social Security politicians raided the funds.People also died earlier than 62 and that money goes back into the pool.It is dumb people who think the government needs to help.No it s the person themselves that choose what way their life will end up.Let them live with their decisions.

The people who have saved and planned for retirement will be the ones getting screwed with higher taxes or new taxes (Roth being changed to taxable if your taxable income is >$$$), etc. to help pay for the people who didn’t delay their gratification or plan ahead to have a comfortable retirement, because big brother (government) will bail them out just like it is currently bailing out multiple generations of food stamp recipients, disability payments (see those commercials on tv to help people get disability?!?) and other entitlements.

Right now too many people think the government is a cash cow, and it is, but there will be a tipping point where more people are receiving benefits/entitlements from the government that what is being paid in.

I guess you can say that it has already come to pass with our TRILLIONS of dollars of debt.

Imoot, I’m sorry I wasn’t clear on what I meant by living “productive” lives. One of the people I’m thinking of works, but he also volunteers about 10 hours a week at a hospice.

I am also familiar with our local Habitat for Humanity organization. This organization has some of the most dedicated volunteers I’ve ever heard of. Most are retired, and many spend several days a week working in the construction end of this organization.

Again, I think that each person needs to define what will be meaningful for them.

The seniors that I know work “for the fun of it”. They don’t need the money. They are doing something that they find meaning in. I also know they generously donate money to organizations they believe in.Everyone has their own ideas about what constitutes fun.

As for leaving money for my children…my circumstances may not allow for that. If something is left over after I’m gone, I’d be glad. I expect that their father will be in a better position to do that. Frankly, I don’t think my children expect that from me. They are aware of my financial situation and just hope I will have enough to live on in my senior years.

I’m sending this article to my parents because I think this could be a really good strategy for them. My dad NEEDS to retire soon but some recent emergencies have drained their EF dry to the bone & they now face the choice of going into a bit of debt – or risking a house-fire. (Gotta love homeownership. Not.) There’s not enough time between now & their hoped-for retirement date to pay off that debt AND build their EF back up, so either they have to put retirement off for another few years (which would be difficult or impossible) – or retire anyways & live with the fear that any small emergency could send them spiraling down the debt drainhole. But if they started drawing SS even just a few months early, they would be able to retire with peace of mind.

The reason my husband plans to wait until 70 to pull his social security is our statements have said his benefits will be but by 25 percent in 2033,exact works are that congress has made changes to the law in the past and can do so at any time . The law governing benefit amounts can change because by 2033 the payroll taxes collected will only be enough to pay only about 75 percent of scheduled benefits. He can retire at 67 in 2028 but would have that cut coming , so he HAS to work until 70 to get what he would have gotten at 67. He will lose everything that he will gain, plus 1 percent, by taking it three years later, 24 percent, So he will retire at 70 in 31 , get his full benefits for two years and then we will see them cut by 25 percent at that point. We cannot afford to take it at 67 and then have them cut 5 years later by 25 percent taking us down even lower than the early retirement will be. I will be pulling half of his,as a stay at home mom of our four kids, who has never worked outside the home, and from what I understand, I can only get half of the amount he gets at 67 not 70 but we will look into that. If I do not get anymore for waiting he will pull it and put it on hold at 67 so I can pull my half, and then at 70 he will get his. It is a shame he cannot get more for working until 70, but that is what we are being told by social security, so we are waiting so we can keep from losing too much by getting the bigger amount to start with.We plan on staying healthy and enjoying retirement.We both believe in keeping positive and plan on having a full and happy retirement. I know plenty of seniors well into thier 70s and 80s living great lives, and that is what we plan to do. So, everyone needs to at least think about that cut when they determine when to take it. The closer your early retirement age gets to 2033 , the more you need to consider working those extra years or you can end up not getting near as much as you planned on getting. And that is if they only cut it 25 percent, it says it can change at any time, so it could go up or down , as in 18 years anything can happen. We are saving as much as we can, but we do want our social security to be as high as possible.
So, our plan is to wait and take it when he is 70 to give us the most income for the rest of our lives as possible.

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My name is J.D. Roth. I started Get Rich Slowly in 2006 to document my personal journey as I dug out of debt. Then I shared while I learned to save and invest. Twelve years later, I've managed to reach early retirement! I'm here to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you get rich slowly. Read more.

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